Industrialization in Financial Services: a new wave of opportunities

The concept of industrialization in banking isn’t new, but in this article we argue that the circumstances that demand it are more pressing than ever. Although bank profits are returning to pre-crisis levels, return on equity (ROE) lags behind investor expectations. Furthermore, attempts in previous years to cut costs have delivered short-term balance sheet results, but have so far failed to address more profound infrastructure issues. We also anticipate that pressure will increase as new market entrants, unburdened by legacy infrastructures, adapt to complex regulation turning what was once a barrier to entry into a commercial opportunity. We compare banking with other business sectors that have undergone profound change driven by similar pressures: competition, fall in demand, and complex regulation. We then look at the economic development of the five largest banks in each market in Germany, Switzerland, the UK, and the US. Using these figures we derive key trends that are both unique to individual countries and common to the sector as a whole. Common factors include ROE that lags behind investor expectations, oversupply of banking services, and the ongoing struggle to manage the cost of compliance. We then describe the latest opportunities for industrialization both in operations, and the front office (as yet largely untouched by outsourcing). In operations we consider strategies that can be applied to service centers, transaction management and risk management. In the front office, we bring the industrialization debate to bear on activities such as client book management, net sales time optimization, and campaign management. Ultimately, we argue that industrialization can help banks address their critical “to do” list, including the drive to improve ROE and the management of surplus capacity. We conclude by anticipating banking activities that are ripe for commercialization, or could become “factories of innovation” where IP can be patented and licensed to a wider market that includes, but is not limited to, banking.